European Council President Herman Van Rompuy speaks during a media conference at an EU Summit in Brussels on Thursday, June 28, 2012. European leaders gathering Thursday in Brussels are set to sign off on a series of measures to boost economic growth but expectations of a breakthrough on the pooling of debt have fallen by the wayside. (AP Photo/Virginia Mayo)— AP

European Council President Herman Van Rompuy speaks during a media conference at an EU Summit in Brussels on Thursday, June 28, 2012. European leaders gathering Thursday in Brussels are set to sign off on a series of measures to boost economic growth but expectations of a breakthrough on the pooling of debt have fallen by the wayside. (AP Photo/Virginia Mayo)
/ AP

German Chancellor Angela Merkel reacts during the debate after her speech for the upcoming EU summit at the German parliament Bundestag in Berlin, Wednesday, June 27, 2012. Germany faces increasing pressure to relent on its resistance to jointly issued eurobonds and other forms of debt-pooling ahead of a European Union summit Thursday. (AP Photo/Markus Schreiber)— AP

German Chancellor Angela Merkel reacts during the debate after her speech for the upcoming EU summit at the German parliament Bundestag in Berlin, Wednesday, June 27, 2012. Germany faces increasing pressure to relent on its resistance to jointly issued eurobonds and other forms of debt-pooling ahead of a European Union summit Thursday. (AP Photo/Markus Schreiber)
/ AP

From right, European Commission President Jose Manuel Barroso, European Council President Herman Van Rompuy and Denmark's Prime Minister Helle Thorning-Schmidt participate in a media conference at an EU Summit in Brussels on Thursday, June 28, 2012. European leaders gathering Thursday in Brussels are set to sign off on a series of measures to boost economic growth but expectations of a breakthrough on the pooling of debt have fallen by the wayside. (AP Photo/Virginia Mayo)— AP

From right, European Commission President Jose Manuel Barroso, European Council President Herman Van Rompuy and Denmark's Prime Minister Helle Thorning-Schmidt participate in a media conference at an EU Summit in Brussels on Thursday, June 28, 2012. European leaders gathering Thursday in Brussels are set to sign off on a series of measures to boost economic growth but expectations of a breakthrough on the pooling of debt have fallen by the wayside. (AP Photo/Virginia Mayo)
/ AP

BRUSSELS 
Increasingly desperate Italy and Spain drove leaders of the 17 countries that use the euro into an emergency overnight meeting Friday to seek agreement on urgent measures to lower their borrowing costs. The success of a summit meant to reassure markets hung in the balance.

A modest deal by the 27 leaders of the European Union to spend (EURO)120 billion ($149 billion) to stimulate economic growth was thrown into flux after Italy and Spain said they would block it unless it was paired with immediate action to help lower the interest rates on their government bonds.

"We see it as a package," said an Italian official, though only on condition of anonymity because the closed-door talks are ongoing.

In a further setback to European leaders' hopes of projecting progress, discussions on longer-term fixes to the continent's financial crisis were postponed until October, French President Francois Hollande said. Some proposals on the table include: centralized banking regulation, Europe-wide deposit insurance and handing the EU more authority over individual countries' taxing and spending plans.

More important to many observers is finding immediate ways to address the high borrowing costs faced by Italy and Spain, the third- and fourth-largest euro economies.

Economists say Spain, for example, can only sustain the high costs -interest rates on its 10-year bonds are hovering near 7 percent - for a few more months. After that, it is likely to ask for a bailout. Spain plans to borrow (EURO)36 billion more through the end of this year, bringing its outstanding debt to (EURO)608 billion. A financial rescue of Spain could cost hundreds of billions of euros (dollars).

To lower the borrowing rates of Spain and Italy, European leaders need to convince investors that these financially stressed countries will be able to keep repaying their debts.

Sharp divisions remain over such measures to boost market confidence, however. They range from allowing the eurozone bailout fund to buy the bonds of the governments of Italy and Spain to bolder, longer-term moves like pooling government debt.

The leaders of Italy, France and Spain have been pressing Germany to agree to some form of these confidence-boosting measures. The EU's top officials and the International Monetary Fund have argued the same.

German Chancellor Angela Merkel has so far opposed such measures.

She says so-called eurobonds should be part of Europe's effort to integrate, but can only happen once national governments have agreed to give a central authority the power to change their budget policies. That could take years - and now the start of that process has been postponed in the wake of Thursday's impasse.